Items of Interest:
Charles Duhigg / NY Times:
At Freddie Mac, Chief Discarded Warning Signs --
“He said we couldn’t afford to say no to anyone...” -David A. Andrukonis, Freddie Mac’s former chief risk officer, about Freddie's CEO, Richard F. SyronThe chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others.
That chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health.
Today, Freddie Mac and the nation’s other major mortgage finance company, Fannie Mae, are in such perilous condition that the federal government has readied a taxpayer-financed bailout that could cost billions. Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Mr. Syron heightened those perils by ignoring repeated recommendations...
Fannie Mae, Freddie Mac to Report Losses Through 2008 --Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, may report net losses through the first quarter of 2009 as home-loan delinquencies rise to the highest on record, analysts' estimates show.
Freddie, based in McLean, Virginia, probably will say tomorrow when it releases second-quarter results that it had $1.9 billion in credit-related costs, while Washington-based Fannie on Aug. 8 will report $2.4 billion, according to Credit Suisse analyst Moshe Orenbuch in New York. The companies' regulator said July 22 that Fannie and Freddie may need to write down the value of $217 billion in securities.
``We see them continuing to lose money for the next several quarters,'' said Orenbuch, the top-ranked analyst covering the companies...
Housing Doom: Fannie and Freddie Own 44% Of Foreclosed Homes
Naked Capitalism: Ruminations on Moral Hazard
Housing Wire: A Firestorm for Freddie
----Walk away Alan, walk away...
Alan Greenspan / Financial Times:
Repel the calls to contain competitive markets -- The surprise of recent months is not that global economic growth is slowing, but that there is any growth at all. The credit crunch of the past year has not followed the path of recent economically debilitating episodes characterised by a temporary freezing up of liquidity – 1982, 1989, 1997-8 come to mind. This crisis is different – a once or twice a century event deeply rooted in fears of insolvency of major financial institutions...
The insolvency crisis will come to an end only as home prices in the US begin to stabilise and clarify the level of equity in homes, the ultimate collateral support for much of the financial world’s mortgage-backed securities. However, US home prices will stabilise only when the absorption of the huge excess of single-family vacant homes that emerged as the US housing boom peaked in 2006 is much further advanced than it is now...
Kevin Depew / Minyanville:
Aging Greenspan Losing Ability to Obfuscate Financial Issues -- The clarity of Greenpan's line of thinking caused at least one economist to break down sobbing. Another economist, sitting nearby, set fire to a signed copy of Greenspan's book, "The Age of Turbulence." ...
Greenspan Blasts Housing Bubble He Helped Create -- The housing bubble was former U.S. Federal Reserve Chairman Alan Greenspan’s doing - plain and simple. He gave birth to it, nurtured it, protected it, and guided it during every stage of its development. In fact, if there were a deck of playing cards featuring the key players in this debacle, Alan Greenspan would be the ace of spades...
How did Merrill miss a $5.7B hole? -- Just 2 weeks after reporting earnings, Merrill Lynch said it would have to take a huge write-down in the third quarter. Hmm, had the financial giant's fortunes really changed that quickly?
When the stock bubble was under way and, even more importantly, when the real-estate bubble was under way, I continually made the point that bubbles should be avoided, using Japan as an example of what happens in their aftermath.
Folks were often quick to respond: Yeah, but that's Japan. We do things differently here.
It's true, we do do things differently here. But what we do differently is we don't save money, as the Japanese do, and we don't run a trade surplus, as they also do. Other than that, it's pretty much the same here as it was there in the 1980s, as far as a preference for obfuscation versus transparency...
Why not rent?
As for the potential of the Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) "bailout" bill to actually solve our housing problem, I thought I'd pass along a few nuggets from Joel Locker of FBN Securities: Even though folks are focused on foreclosure rates, rental vacancies are just as material. As of the end of the second quarter, vacant rental units stood at 10% (about 3.94 million units), up from the 43-year average of 7.16%.
That 2.84-percentage-point difference equates to about 1.12 million excess rental units above the historic mean, which prompts Locker to ask: "Why keep people in houses they can barely afford without government (taxpayer) assistance when rental units desperately need occupancy?" ...
The Big Picture:
Gartman: The Reign of Thain Has Been Anything But Plain -- John Thain, Merrill quotes -- and makes it apparent that Mr. Thain is a slickster too clever by half...
----Andrew Jeffery / Minyanville:
Who's Afraid of Recession? -- We're taught from an early age how to deal with fear. We're told to face it, respect it, overcome it, lest it overcome us instead. Deny it, ignore it, push it away, or it will consume you.
Still, despite such a seemingly clear roadmap on how to deal with things that go bump in the night, the powers that be continue to fudge economic data. They adamantly declare we’re not in a recession, even when all reasonable information indicates otherwise...
Thoughts on the Housing Bill -- The best thing about the housing bill is that they're going to eliminate the down payment assistance programs that have default rates almost as high as that for subprime arm mortgages...
The worse thing about the housing bill is the blank check that Congress just gave to the mortgage GSEs, a blank check that doesn't come with conditions related to reigning in their investment activities, breaking the companies up into smaller and less risky entities, etc, etc. In effect Congress has elected to use tax payer money to back stop the old model...
- 'Leveraged Bailout' Won't End Mortgage Madness - J. Wasik, Bloomberg
- Time to lock in your mortgage rate - CNNMoney
- Technology That Can Help With a Home Sale - WSJ
- Asking Home Prices Fall in July, While Inventory Growth Slows - Housing Wire
- Truce Time In the Fan-Fred Wars - Franklin Raines, Wall Street Journal
- Why Bailouts Are Bad, Why We Need Them - Chris Farrell, BusinessWeek